Asset-backed commercial paper programs (also known as "conduits") take illiquid assets and bundle these assets into a segregated pool against which highly liquid money-market instruments can be issued. The cash collected on the underlying assets in the pool is the source of repayment of principal and interest on these instruments. In these programs, the underlying assets are the receivables of business entities and the market instrument that is issued is commercial paper. Asset-backed commercial paper programs use a financial "vehicle" called a special purpose entity (SPE) to issue commercial paper. The program provides a service basically similar to that offered by a factoring company (also known as a "factor"), in that the SPE finances the receivables of corporate clients. In other respects, however, the SPE differs from a factoring company. Typically, a factor assumes the role of a credit department for its clients to evaluate the credit-worthiness of the client's customers. While it finances a client's receivables by purchasing them, the SPE does not perform a credit evaluation of each obligor associated with the receivables in the pool as a factor would, but relies instead on an actuarial review of the past performance of the client's portfolio of receivables. With an SPE, the corporate client usually performs the servicing function, whereas in a factoring arrangement, the factor generally services the receivables. Asset-backed commercial paper programs are ongoing activities. The SPE continually purchases new receivables and usually "rolls over" the outstanding commercial paper.
FIG. 1 shows the structure and cash flows of a conventional prior art paper program 10. Prior to acquiring the receivables, the program sponsor 26 reviews the receivables. The review covers the credit origination standards of the company 14 originating the receivables and current and historical quality and performance of this portfolio. The asset backed commercial paper program uses an SPE 12 to acquire legal title to receivables directly from a company 14 participating in the program. To obtain funding, the SPE 12 issues commercial paper to an investment bank 16. The investment bank 16 sells the commercial paper to investors 18. The commercial paper is ultimately repaid by the SPE 12 from the cash flow of the underlying pools of receivables. The rating agencies require that the entire amount of outstanding commercial paper be covered by liquidity and credit enhancements before the program can receive the highest investment rating. These enhancements are provided by credit enhancer 20 and liquidity provider 22. Employees of the investment banking firm 16 generally own the equity of the SPE. The owner 24 of the SPE 12 receives dividends. A program sponsor 26 such as a bank receives a fee.
Health care receivables differ in several important ways from other types of receivables that have been securitized to date. Health care providers, by delivering various forms of medical services, are the originators of health care receivables (also known as medical claims). The bill for the services rendered may be payable entirely by the patient, entirely by some form of insurance, or partially by the patient and partially by insurance. The insurance payors and the patient are the obligors on the receivable. The insured portion of a health care receivable may be payable by a government program (such as Medicare), a Blue Cross/Blue Shield insurance company, a private insurance company, or a Health Maintenance Organization (HMO).
Unlike most other types of receivables, the face amount of the medical claim may have limited relevance to the amount the health care provider can reasonably expect to collect. The reimbursement procedures for medical services are complicated. For example, Medicare might be willing to pay only a fraction of the amount billed based either on their system of diagnostic-related groups (DRGs), the use of a resource-based value scale (RBVs), or on allowable costs incurred. Similarly, Blue Cross/Blue Shield or a private insurance company might limit the amount paid to a percentage of the provider's fees and charges, or an estimate of the reasonable and customary charge for the procedure in the locality in which the medical service was rendered. Finally, an HMO may pay on a per diem rate or on a fixed-fee-per-person basis (capitated payment).
Claims paid by Medicare are also subject to the requirement that they are directly payable to the health care provider. A consequence of the direct payment requirement is that Medicare payments paid to a bankrupt provider/seller might be trapped by the Bankruptcy Code's automatic stay. This risk could be reduced in a commercial paper program by making the provider set up a "bankruptcy-remote" subsidiary through which all Medicare claims are billed. The conduit can then lend money to the bankruptcy-remote subsidiary and take a senior secured position against the subsidiary's assets.
As described below, the present invention provides an information system to facilitate securitization of medical receivables. The invention is applicable to other types of receivables as well.